Hello!

I'm just starting out in note investing and trying to figure out some of the basic first steps. I would like my first one to be a performing note on a 1st mortgage. This feels like a generally safe way to get my feet wet and learn about the process of purchasing a note. A lot of what I have been reading is pretty high level and talks about the general idea behind note investing, but finding anything specific has been kind of difficult. I'm guessing this is because note investing is not quite as cookie cutter as other types of real estate investing, and there just aren't as many people doing it.

As far as I can tell the first step is to contact the asset managers of different financial institutions and ask them to provide a tape listing the different notes they have for sale. Are there any guidelines as to which institutions to contact? I have read to stay away from larger banks because they are only really interested in dealing bundles of notes, not one-offs. Does location of the bank really matter? Or should I really just try to contact as many banks as possible, fire away emails, and take a look at what comes back. I'm getting a little bit wrapped around the axle trying to figure out if i should target specific banks or if i should just wholesale try to contact as many institutions as possible.

I'm also wondering how you feel about going through online websites to purchase notes (PPR, FCI Exchange) vs. obtaining tapes from financial institutions?

I look forward to learning more about note investing and become a more active member of this forum. Thanks for any replies! 

-Dave

Hi David,

I'm a newbie to note investing myself and I've been lurking on this forum for a couple of months.  There are plenty of helpful experts around and they'll chime in but one piece of advice I can give is to start reading the posts on the forum - even the older ones.  Generally the questions we newbies have are most likely answered somewhere here.  Additionally, even if the thread topic is of no interest to you, sometimes the conversation steers into other topics and you can pick up a good piece of useful info.

With regards to getting tapes, it may be better to JV with someone (joint venture) before flying solo and contacting banks.

Best of luck to you!

Just my opinion but if you're just starting out, and are looking for performing notes, I wouldn't bother with banks.

You will get quicker results with small note investors and hedge funds, some of which are on this forum. Recapitalizing is a challenge so people sell reperformers or, a new trend, partials.

@David Piqueira , if you are just starting out, I recommend exactly two things.  Yes, I said exactly, lol.  First, check out @Scott Carson 's podcast on iTunes and videos on vimeo to learn.  He has a lot of free content on non performing notes (first lien).  He also has a NoteCamp coming up on October 12th-15th which will be badass, full of good info and pros in the market. Second, I would partner with someone.  I think if  your plan is to get into non performers...start with non performers.  Don't be afraid to jump.  Just make sure you jump of a curb first and not a cliff.  

You can always reach out, too if you want.  PM me if you need.

@David Chance Yeah, I have started reading and bookmarking some of the threads in the forum. There's some really great info that I've already come across. I definitely need to educate myself some more before I make moves, but I am also mindful to not get stuck in the learning phase forever. 

@Patrick Desjardins So you would recommend purchasing notes from other investors or hedge funds? Is there a platform for this or do you still have to find contacts directly?

@Eric Hyde I'm familiar with Scott Carson, but I haven't listened to his podcast yet. I'll definitely check that out. Right now I want to get my feet wet by purchasing a performing note. The returns seem like they are good enough and I like that they are relatively passive compared to NPN. That said, a lot of the information I have found on note investing seems geared towards NPN for some reason.

Thanks for the replies all!

BS advice above. Why is he not going to have access to "high quality notes or good pricing"?

We've mentioned 100 times on this forum to start your pricing at 12% irr on performing notes. That's been pretty standard knowledge with the buyers and sellers I've talked to, and I sold my last one at 12.5. Not sure why he would have worse pricing as a newbie.

Same thing with quality of the notes. Why would his reperformers be worse than anyone else's?

I know some people here are fishing for JV partners but misleading people isn't going to get you anywhere and you will be called out on it.

There is nothing wrong with starting out with a performing or reperforming note if it gives you confidence in notes and fits your strategy.

Great discussion. I have already gotten into my fair share of heated debates.

What it all comes down to is this - in my humble opinion.

1. What are you looking to get out of the deal - return wise, time wise, cash flow wise, etc.

2. Run the damn numbers. So much talk without any hard numbers 

I created this cheap and easy JV partnership calculator.

You need to make a copy of it on your own Google Drive, Rename it, and Edit/Play Away.

It's not perfect - but this spreadsheet has stopped useless bickering more than once.

Open the JV Deal Calculator Here

@Account Closed Thanks so much for your spreadsheet, very helpful

@Gail Greenberg  I have just downloaded a couple of @Scott Carson podcast episodes. I'm excited to listen to them. 

@Account Closed got my approach pretty well. It will help to build confidence in notes, help me learn with a less risky/complicated investment, and the returns are still fine (typically ~15% from what I read). They just feel more approachable for some reason. I feel like NPN are going to take a bit more practice, learning, and apprenticeship to really get the hang of. I feel that investing in performers first will give me a better chance of making money while learning rather than losing money while learning.

Also, I read this great post by @Dan Konipol that listed different investment approaches depending on how active/passive you wanted to be. Investing in performers was more on the passive side than NPN, and that's what I'm looking for right now, at least while I'm getting started. Maybe down the road if i really love note investing and want to replace my current job, actively investing in NPN might be the way to go.

All that said, i'm definitely open to arguments on either side of this, and I definitely see more info out there about investing in NPN. It seems to be the default for some reason. Is it just because the returns are better? Are there more opportunities out there?

PS: How come my links to people that haven't posted in this thread don't work? 

Originally posted by @David Piqueira :

PS: How come my links to people that haven't posted in this thread don't work? 

 If someone isn't part of the thread already, the @ mention only works if they are one of your colleagues. Sometimes people will setup keyword alerts for their name so they are notified whenever mentioned in a post though. I think you mean "Don" Konipol though, not "Dan."

@David Piqueira Your strategy/approach is the same as mine!  Slow and steady wins the race.  Plus, if a 15% return really is feasible for performing notes, that's double the long-term historical average stock market return--not too shabby!  

It's easy to get drawn in by the potential of big returns from NPNs, but it's important to keep your goals in mind too and, similarly, what kind of returns you need to be earning to reach your goals.  If your goals require you to "only" need to be earning a 12% return, then taking on additional risk of NPNs for a 20% return might not be worth it to you.  A lot of the financial podcasts I listen to (particularly Stacking Benjamins) emphasize this mindset.  They claim that people too often just save or invest without any idea of how much they'll really need to reach their goals.  The argument is that if you work backward from your goals, instead of just saving/investing without a plan, then you can (hopefully) come up with an intelligent plan and increase your chances of actually reaching your goals.  

Good luck to you!

From what I have seen, performing notes in the 12-15 % range were once non performing or recent reperformers. I believe buying a performing note to start off is not a bad idea but you will want to know the history of it as nothing will be worse then buying a performing note at 90% UPB only to have it go non performing.
Also make sure whoever you buy from has been using a licensed servicer in that stay and not self servicing the loan

How do you go about verifying these things?  Are there specific documents you are requesting/looking at or just asking?

Originally posted by @Chris Seveney :

I believe buying a performing note to start off is not a bad idea but you will want to know the history of it as nothing will be worse then buying a performing note at 90% UPB only to have it go non performing.
Also make sure whoever you buy from has been using a licensed servicer in that stay and not self servicing the loan

@Michael Rosenson Exactly! My real goal is financial independence through semi-passive income. The more passive I can make this cashflow the better, I'm not necessarily looking to pick up another job right now. Its important to be mindful of how much is enough. 

Anyway, I'd still like to start out by getting a performer and then re-evaluate depending on how that goes.

@Michael Rosenson
Find out if it had a loan modification and when that occurred. Also ask for payment history from the servicer. Only buy a note if it is being serviced by a licensed servicer. I only consider noted with 12 months of seasoning as performing. I have seen sellers collect a lump sum as part of the modification as a reinstatement fee, get the borrower to pay next 3 months and sell it as a performing note. Everyone has their own opinion on what is performing so buyer beware